Recent BSP rate cut enough to cushion COVID-19 impact

Published February 15, 2020, 12:00 AM

by manilabulletin_admin


The Bangko Sentral ng Pilipinas (BSP) said the recent interest rate cut is currently enough to cushion the effects of the novel coronavirus outbreak on domestic demand.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.(Bloomberg)
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.(Bloomberg)

In a briefing, BSP Governor Benjamin E. Diokno said late Friday that there is no need for further monetary easing following the 25-basis-point policy interest rate cut last February 6.

“At the moment, I don’t see a need for monetary easing other than what we have done,” Diokno told reporters. “We are happy where we are right now”
Currently, the BSP’s overnight reverse repurchase rate is at 3.75 percent, while rates on overnight lending and deposit facilities are at 4.25 percent and 3.25 percent, respectively.

“The cut on 6 February 2020 was intended as a preemptive move to support market confidence and ward off the possible spillover effects of the [2019 novel coronavirus (COVID-19)] outbreak on domestic demand,” he added.
But he reiterated that the central bank still plans to reduce the benchmark rates by a total of 50 basis points this year.

“Given a manageable inflation outlook over the next two years, a policy interest rate cut at this juncture would provide additional policy support to help the economy withstand increased in external headwinds,” Diokno said.

Meanwhile, Diokno said the COVID-19 remains a downside risk to the country’s economy, particularly on tourism and exports sectors.

Tourism direct gross value added in the Philippines accounted for 12.7 percent of nominal gross domestic product (GDP) in 2018, while China accounted for 13.7 percent of the country’s merchandise exports in 2019.

“Initial assessment points to a potential dampening impact on the Philippine economy in the coming months mainly through disruption to tourism and associated services,” Diokno said.

“Regional trade and manufacturing could also decline owing to potential breaks in global supply chains, as efforts to contain the outbreak continue to contain the production and transportation of raw material and finished goods,” he added.

For this reason, the BSP chief expects weakening in consumption demand.

“As the viral outbreak continues to spread across the globe, there could be attendant effects on domestic sentiment and confidence. The resulting uncertainty could in turn dampen investment and consumption, and thereby contribute to possible disinflationary risk,” Diokno said.

For 2020, the BSP targeting inflation to be around 2.0 percent to 4.0 percent.
“The BSP will continue to be vigilant as the situation unfold and will assess its potential impact on inflation outlook and on the entire economy,” Diokno said.

“Going forward, the BSP stands prepared to calibrate its monetary instruments, and implement regulatory relief, as need,” he added.